Chicago’s Ponzi: Building an Empire of Deception

Chicago, 1924: the corner of Madison and State in the Loop. (Chicago History Museum)

He was often spotted in the Loop, being chauffeured around town in a maroon Rolls-Royce limousine.

His destination may have been his law office in the Majestic Building, a skyscraper clad in gleaming white terra-cotta with a downstairs theater that welcomed the likes of escape artist Harry Houdini.

Perhaps he was headed to the newly opened Drake Hotel, where he kept a sixth-floor suite overlooking Oak Street Beach. Or he may have been on his way to his opulent lakeside mansion in Evanston, to join his wife Mae and two children for dinner.

The Daily Tribune pegged him as one of the wealthiest men in 1920s Chicago, a millionaire many times over. A writer for a rival newspaper considered him the embodiment of the American Dream, “an outstanding example of the Horatio Alger type of self-made man.”

Leo Koretz, nicknamed “Our Ponzi” by unsuspecting investors.

Leo was a lavish entertainer who often hired musicians and actors to stage private performances for his friends and colleagues. Charming, sophisticated and always immaculately dressed, he attracted a legion of female admirers, even though he was in his mid-forties, balding and squinted at the world through the thick lenses of horn-rim glasses. And he was happy to share the secrets of his financial success, which attracted a legion of grateful investors.

A German-Jewish immigrant from Bohemia, now part of the Czech Republic, he had grown up in North Town (known as Old Town today) and Lake View during the 1890s. His neighbors included sausage-maker Oscar Mayer and foot-care pioneer Dr. William Scholl, and like them, Leo was determined to make a fortune.

Chicago, Henry Blake Fuller observed in his novel With the Procession, published while Leo was still in high school, was “the only great city in the world to which all its citizens have come for the one common, avowed object of making money.”

The ambitious Leo Koretz had come to the right place.

He had started out as an office boy at one of the city’s leading law firms, Moran, Mayer and Meyer. One of the partners encouraged him to take night classes at Chicago-Kent College and he earned a law degree in 1901. He opened his own practice a few years later but discovered his real talent was making money.

Soon he was helping relatives, friends and wealthy associates to invest in real estate. When transforming swamps into rice fields sparked a land boom in Arkansas, Leo jumped in and peddled mortgages and shares in farms.

On the eve of the First World War, he began selling shares in the Bayano Syndicate, which controlled millions of acres of timberland in Panama’s remote Bayano River Valley. Leo and his investors grew rich supplying lumber and railroad ties to the builders of the Panama Canal.

Hundreds of Chicagoans bought shares in the Bayano Syndicate and its Panamanian oil fields.

Then, in 1921, they became even richer. Leo announced that oil had been discovered on his Bayano holdings. The syndicate began pumping and exporting crude, boosting shareholders’ profits to an astounding sixty per cent a year. There was a stampede for Bayano stock. People besieged his Evanston home, begging Leo to take their money. One desperate investor showed up at Leo’s office and, finding the door locked, tossed his cash through the transom window.

“Everybody had confidence in him and just seemed to take his word, and never worried about the details,” said one investor. Insurance broker Charles Cohn, a major Bayano shareholder, was among the hundreds of wealthy Chicagoans who were convinced Leo was a financial genius. “His followers were devout,” Cohn recalled. “It was a religious devotion.”

The exposure of one of America’s most notorious swindlers in 1920 did nothing to shake their faith in Leo.

Boston’s Charles Ponzi, who claimed he could double investors’ money in 90 days, used millions of dollars collected from new investors to pay the enormous profits he owed to established stockholders, and helped himself to the rest. The fraud collapsed and the rob-Peter-to-pay-Paul swindle had a name – the Ponzi scheme.

In Chicago, some Bayano investors began referring to Leo as “Our Ponzi.” They were teasing, of course. Not one of them suspected, even for a moment, that their generous friend was one of the most brazen and successful con artists in history, the Bernie Madoff of his time.

Leo had been running a succession of Ponzi schemes for almost two decades, raking in as much as $30 million – close to $400 million today. The Bayano Syndicate’s vast oil fields and stands of timber existed only in Leo’s imagination.

“Our Ponzi” was the perfect nickname. And the joke, Leo’s investors would soon discover, was on them.